Ad Hoc Grp. of Vitro Noteholders v. Vitro S.A.B. De C.V. (In re Vitro S.A.B. De C.V.)

• Decision Date: 28 November 2012
• Docket Number: Nos. 12–10542,12–10689 and 12–10750.,s. 12–10542
• Citation: 701 F.3d 1031
• Parties: In the Matter of VITRO S.A.B. DE C.V., Debtor. Ad Hoc Group of Vitro Noteholders, Appellant, v. Vitro S.A.B. de C.V., Appellee. In the Matter of Vitro S.A.B. de CV, Debtor. Vitro S.A.B. de C.V., Appellant, v. Ad Hoc Group of Vitro Noteholders; Wilmington Trust, National Association, solely in its capacity as indenture trustee; U.S. Bank National Association, Appellees. In the Matter of Vitro S.A.B. de C.V., Debtor. Fintech Investments, Limited, Appellant, v. Ad Hoc Group of Vitro Noteholders; Wilmington Trust, National Association, solely in its capacity as indenture trustee; U.S. Bank National Association, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

701 F.3d 1031

In the Matter of VITRO S.A.B. DE C.V., Debtor.

Ad Hoc Group of Vitro Noteholders, Appellant,

v.Vitro S.A.B. de C.V., Appellee.

In the Matter of Vitro S.A.B. de CV, Debtor.

Vitro S.A.B. de C.V., Appellant,

v.Ad Hoc Group of Vitro Noteholders; Wilmington Trust, National Association, solely in its capacity as indenture trustee; U.S. Bank National Association, Appellees.

In the Matter of Vitro S.A.B. de C.V., Debtor.

Fintech Investments, Limited, Appellant,

v.Ad Hoc Group of Vitro Noteholders; Wilmington Trust, National Association, solely in its capacity as indenture trustee; U.S. Bank National Association, Appellees.

Nos. 12–10542, 12–10689 and 12–10750.

United States Court of Appeals, Fifth Circuit.

Nov. 28, 2012.

Jeff Philipp Prostok, Forshey & Prostok, L.L.P., Fort Worth, TX, Allan S. Brilliant, Dechert, L.L.P., New York City, G. Eric Brunstad, Jr. (argued), Matthew Joseph Delude, Collin O'Connor Udell, Dechert, L.L.P., Hartford, CT, for Ad Hoc Group of Vitro Noteholders.

Andrew M. Leblanc (argued), Milbank, Tweed, Hadley & McCloy, L.L.P., Washington, DC, David Mark Bennett, Katharine Battaia Clark, Cassandra Ann Sepanik, Thompson & Knight, L.L.P., Dallas, TX, Alan J. Stone, Jeremy C. Hollembeak, Milbank, Tweed, Hadley & McCloy, L.L.P., New York City, for Vitro S.A.B. de CV.

Kevin K. Russell, Goldstein & Russell, P.C., Washington, DC, for Government of the United Mexican States, Amicus Curiae.

Jeff Philipp Prostok, Forshey & Prostok, L.L.P., Fort Worth, TX, Sanford M. Litvack, Hogan Lovells US, L.L.P., New York City, for Wilmington Trust, Nat. Ass'n.

Jason S. Brookner, Cameron Phair Pope, Andrews Kurth, L.L.P., Houston, TX, Jeanne P. Darcey, Kevin M. Colmey, Richard Hiersteiner, Amy A. Zuccarello, Sullivan & Worcester, Boston, MA, Jeff Philipp Prostok, Forshey & Prostok, L.L.P., Fort Worth, TX, for U.S. Bank Nat. Ass'n.

Lindsee P. Granfield (argued), Cleary, Gottlieb, Steen & Hamilton, L.L.P., New York City, Briana Leigh Cioni, Sander L. Esserman, Stutzman, Bromberg, Esserman & Plifka, P.C., Dallas, TX, for Fintech Investments, Limited.

Appeals from the United States Bankruptcy Court for the Northern District of Texas.

Before KING, SMITH and BARKSDALE, Circuit Judges.

KING, Circuit Judge:

Consolidated before us are three cases relating to the Mexican reorganization proceeding of Vitro S.A.B. de C.V., a corporation organized under the laws of Mexico. The Ad Hoc Group of Vitro Noteholders, a group of creditors holding a substantial amount of Vitro's debt, appeal from the district court's decision affirming the bankruptcy court's recognition of the Mexican reorganization proceeding and Vitro's appointed foreign representatives under Chapter 15 of the Bankruptcy Code. Vitro and one of its largest third-party creditors, Fintech Investments, Ltd., each appeals directly to this court the bankruptcy court's decision denying enforcement of the Mexican reorganization plan because the plan would extinguish the obligations of non-debtor guarantors. For the following reasons, we affirm the district court's judgment recognizing the Mexican reorganization proceeding and the appointment of the foreign representatives. We also affirm the bankruptcy court's order denying enforcement of the Mexican reorganization plan.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Vitro S.A.B. de C.V. and the 2008 Financial Crisis

Vitro S.A.B. de C.V. (“Vitro”) is a holding company that, together with its subsidiaries, constitutes the largest glass manufacturer in Mexico. Originally incorporatedin 1909, Vitro operates manufacturing facilities in seven countries, as well as distribution centers throughout the Americas and Europe, and exports its products to more than 50 countries worldwide. Vitro employs approximately 17,000 workers, the majority of whom work in Mexico. Between February 2003 and February 2007, Vitro borrowed a total of approximately $1.216 billion, predominately from United States investors. Vitro's indebtedness is evidenced by three series of unsecured notes. The first series was issued on October 22, 2003 and consisted of $225 million aggregate principal amount of 11.75% notes due 2013; the second and third series were issued on February 1, 2007, and consisted of $300 million of 8.625% notes due 2012 and $700 million of 9.125% notes due 2017 (collectively the “Old Notes”).

Payment in full of the Old Notes was guaranteed by substantially all of Vitro's subsidiaries (the “Guarantors”). The guaranties provide that the obligations of the Guarantors will not be released, discharged, or otherwise affected by any settlement or release as a result of any insolvency, reorganization, or bankruptcy proceeding affecting Vitro. The guaranties further provide that they are to be governed and construed under New York law and include the Guarantors' consent to litigate any disputes in New York state courts. The guaranties state that “any rights and privileges that [Guarantors] might otherwise have under the laws of Mexico shall not be applicable to th[e] Guarant[ies].”

In the latter half of 2008, Vitro's fortunes took a turn for the worse when the global financial crisis significantly reduced demand for its products. Vitro's operating income declined by 36.8% from 2007 to 2008, and an additional 22.3% from 2008 to 2009. In February of 2009, Vitro announced its intention to restructure its debt and stopped making scheduled interest payments on the Old Notes.

B. Vitro Restructures Its Obligations

After Vitro stopped making payments on the Old Notes, it entered into a series of transactions restructuring its debt obligations. On December 15, 2009, Vitro entered into a sale leaseback transaction with Fintech Investments Ltd. (“Fintech”), one of its largest third-party creditors, holding approximately $600 million in claims (including $400 million in Old Notes). Under the terms of this agreement, Fintech paid $75 million in exchange for the creation, in its favor, of a Mexican trust composed of real estate contributed by Vitro's subsidiaries. This real estate was then leased to one of Vitro's subsidiaries to continue normal operations. The agreement also gave Fintech the right to acquire 24% of Vitro's outstanding capital or shares of a sub-holding company owned by Vitro in exchange for transferring Fintech's interest in the trust back to Vitro or its subsidiaries.

Partly as a result of these transactions, Vitro generated a large quantity of intercompany debt. Previously, certain of Vitro's operating subsidiaries directly and indirectly owed Vitro an aggregate of approximately $1.2 billion in intercompany debt. As a result of a series of financial transactions in December of 2009, that debt was wiped out and, in a reversal of roles, Vitro's subsidiaries became creditors to which Vitro owed an aggregate of approximately $1.5 billion in intercompany debt. Despite requests by holders of Old Notes, Vitro did not disclose these transactions. In August of 2010, Fintech purchased claims by five banks holding claims against Vitro and its subsidiaries and extended the maturity of various promissory notes issued by Vitro's subsidiaries. Pursuantto a “Lock-up Agreement” completed between Fintech and Vitro, Fintech also agreed not to transfer any debt it held in Vitro unless such transfer was in line with the terms of that agreement.

Only in October of 2010, approximately 300 days after completing the transactions with its subsidiaries, did Vitro disclose the existence of the subsidiary creditors. This took the transactions outside Mexico's 270–day “suspicion period,” during which such transactions would be subject to additional scrutiny before a business enters bankruptcy.

C. Vitro Commences a Concurso Proceeding in Mexican Court

Between August 2009 and July 2010, Vitro engaged in negotiations with its creditors and submitted three proposals for reorganization. Each was rejected by creditors. After the last proposal, the Ad Hoc Group of Vitro Noteholders (the “Noteholders”), a group of creditors holding approximately 60% of the Old Notes, issued a press release “strongly recommend[ing]” that all holders of the Old Notes deny consent to any reorganization plan that the Noteholders had not approved. On November 1, 2010, Vitro disclosed its intention to commence a voluntary reorganization proceeding in Mexico, together with a pre-packaged plan of reorganization. On December 13, 2010, Vitro initiated in a Mexican court a concurso proceeding under the Mexican Business Reorganization Act, or Ley de Concursos Mercantiles (“LCM”).¹

The Mexican court initially rejected Vitro's filing on January 7, 2011, because Vitro could not reach the 40% creditor approval threshold necessary to file a concurso petition without relying on intercompany claims held by its subsidiaries. On April 8, 2011, that decision was overruled on appeal and Vitro was then declared to be in bankruptcy, or concurso mercantil. Pursuant to Mexican law, Javier Luis Navarro Velasco was appointed as conciliador.²

The conciliador was tasked with filing an initial list of recognized claims and mediating the creation of a reorganization plan. The conciliador did so, and on August 5, 2011, filed a proposed final list of recognized creditors, which included those subsidiaries holding intercompany debt. The conciliador then negotiated terms of a reorganization plan between Vitro and the recognized creditors to submit to the Mexican court for approval. Throughout this process, the parties were apparently in frequent contact with the Mexican court on an ex parte basis.

1. Terms of the Concurso Plan

On December 5, 2011 the conciliador submitted to the Mexican court a proposed restructuring plan (the “ Concurso plan” or “Plan”) substantially identical to the one Vitro had originally proposed. Under the terms of the Plan, the Old Notes would be extinguished and the obligations owed by the Guarantors would be discharged. Specifically, the Plan provides that:

[O]nce this Agreement is approved by the...